2017 (10) TMI 992 - AT - Income Tax

Undisclosed sales - assessment u/s 153A - Held that - We are of the opinion that present case is not the case of Lack of enquiry but it is a case of not understanding the accounting entries made by the assessee in the books of accounts. The Ld. assessing officer has failed to appreciate that when the assessee has already booked sales of 2404 bags in the books of accounts by crediting the sales account and debiting the cash on hand, there cannot be once again an addition on account of the gross profit on the same sales. In the present case, the Ld. assessing officer has failed to appreciate that assessee has already accounted the sales in the books of accounts at the prevailing market rate and profit thereto has already been added by the assessee in its normal accounts. Therefore, there cannot be an unaccounted sales and consequent addition. - Decided in favour of assessee.

Issues Involved:
1. Legality and jurisdiction of assessment orders under section 153A of the Income Tax Act, 1961.
2. Validity of additions based on information from the Central Excise Department.
3. Requirement of incriminating material for initiating proceedings under section 153A.
4. Examination and adjudication of undisclosed sales by CIT(A).

Issue-Wise Detailed Analysis:

1. Legality and Jurisdiction of Assessment Orders under Section 153A:
The assessee argued that the assessment orders under section 153A were illegal, arbitrary, and without jurisdiction in the absence of any incriminating material found during the search under section 132 of the Income Tax Act, 1961. The Tribunal noted that no incriminating evidence was found during the search by the Income Tax Department. Consequently, it was held that only additions based on incriminating materials unearthed during the search could be made under section 153A, as established by the Delhi High Court in the cases of CIT vs. Kabul Chawla and CIT vs. Meeta Gutgutia.

2. Validity of Additions Based on Information from the Central Excise Department:
The revenue's appeals were based on additions made by the Assessing Officer (AO) due to undisclosed sales information received from the Central Excise Department. The Tribunal observed that the AO had added gross profit based on the Central Excise Department's seizure of goods, which were allegedly not recorded in the books of accounts. However, the Tribunal found that the assessee had already accounted for these sales in its books and that the AO did not verify or cross-examine the information from the Central Excise authorities. Thus, the Tribunal upheld the CIT(A)'s decision to delete these additions.

3. Requirement of Incriminating Material for Initiating Proceedings under Section 153A:
The Tribunal emphasized that for proceedings under section 153A to be valid, there must be incriminating material found during the search. Since no such material was found during the search, the Tribunal concluded that the additions made by the AO were not sustainable. This principle was reiterated in the Tribunal's decision for all assessment years under consideration (2005-06, 2006-07, and 2007-08).

4. Examination and Adjudication of Undisclosed Sales by CIT(A):
The CIT(A) had deleted the additions made by the AO on account of undisclosed sales, citing that no incriminating evidence was found during the search and that the AO had not conducted any further verification of the information from the Central Excise Department. The Tribunal supported the CIT(A)'s findings, noting that the sales were already recorded in the assessee's books and that the AO's failure to appreciate this led to an erroneous addition. The Tribunal also pointed out that the redemption of goods by payment of excise duty and fine does not imply unrecorded sales.

Separate Judgments Delivered:
The Tribunal delivered separate judgments for each assessment year (2005-06, 2006-07, and 2007-08), but the rationale and conclusions were consistent across all years. The appeals by the revenue were dismissed, and the cross-objections by the assessee were also dismissed based on the same reasoning.

Conclusion:
The Tribunal dismissed the revenue's appeals for all three assessment years and upheld the CIT(A)'s decision to delete the additions made by the AO. The Tribunal also dismissed the assessee's cross-objections, as the primary issue of the absence of incriminating material had already been decided in favor of the assessee by the CIT(A). The judgments emphasized the necessity of incriminating material for valid proceedings under section 153A and highlighted the importance of proper verification and examination of information received from other departments before making additions.

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